How to trade the news
News Trading is purported to be a way of trading economic news announcements in the FX market. This is a system taught and promoted by a number of traders.
Having tried this method for a number of months I have concluded that AT BEST, news trading can only augment longer term trading strategies. There are just too many idiosyncratic variables that can affect the outcome of a news trade.
These problems include:
1. Broker unreliability: currency dealers historically have been unresponsive or even offline during the release of significant news reports.
2. Speed problems: if you are not able to act super fast, trading right after a report can get you in at the top or bottom of a move. If you're too fast, you can get killed by a revision (see below).
3. Slippage: order execution has historically been poor in the moments following significant news reports.
4. Report Revisions: A report can come out in one direction, and moments later, the previous month's revision can push the currency pair in exactly the opposite direction. This can cut you off at the knees while you're in the middle of a short-term news trade.
5. Potential for huge losses: the bigger reports can move a currency pair 100 pips in just a few seconds – and this move can result in huge losses for traders who bet in the wrong direction, set their stops too wide, or who experience the problems mentioned above.
Given that anything can happen in the moments after a news report, I've stopped trading this high-adrenalin method and have switched to trading longer term, less random movements.
I'll keep the high-adrenaline screen time to playing with the Playstation, not with my real money.
